Bulls got what they were hoping for. The NASDAQ had a couple bouts of profit taking, both of which created higher lows, which were followed by higher highs. Three times, the index stepped higher. That is an uptrend. For a bonus, bulls moved beyond resistance and the NASDAQ’s 200-day moving average.
But, is it too much too fast?
It’s tough to tell if the current trend has legs. Monday’s selling wouldn’t be concerning in most cases, especially following a 1,500-point run. However, the 200-day benchmark will be the lynchpin. If buyers take the tech-heavy index north of the important trendline and close about 11,500, we’d interpret that as a major plus.
Should early week selling continue, the shorter 50-day moving average should offer solid support at 11,000, which coincides with previous technical support. A few weeks back, we switched from sell into strength to hold during selling. Now, we are moving towards buying the dip.
Most intuitions believe the Federal Reserve is on the doorstep of ending its higher rates policy. Some feel the next hike could be the last. With consumer spending cooling, inflation should dip, but unemployment could rise. Believe it or not, more unemployed is what the Federal Reserve wants. That’s not the language they use. Instead, it’s called some version of wage pressure. The more you make, the more you spend, the more you spend, the higher prices go is part of the Fed’s thinking.
Wall Street will be eying the unemployment numbers with bullish intent. If/when unemployment, which is a lagging indicator, starts to rise, traders will start betting on the Federal Reserve lowering rates and the market will head higher. Keep this cycle in mind when reading headlines.
Index investors might consider an exchange-traded fund (ETF) like Invesco QQQ Trust (QQQ) when the NASDAQ pivots higher or if the index dips to the 50-day. We’d stay away or cut losses if the NASDAQ closes below 10,750.
A little bit of everything made it into our sector performance leaderboard. ARK Next Generation Internet ETF (ARKW) was number one gaining more than 6 percent. In total, there were 17 industry/sector funds that gained more than 2 percent on the week. It was a good week across the board.
Perhaps the best news found within our leaderboard is that QQQ decisively outperformed SPDR S&P 500 ETF Trust (SPY). It’s a positive technical sign when the NASDAQ outperforms the other major indexes. Let’s hope it stays that way.
All of the top industry charts have a similar look as QQQ’s chart. With such high visual correlation, we’ll just stick with Invesco QQQ Trust (QQQ). Adding anything else at this point would essentially be redundant, in our opinion.
We looked through 100s of stock charts due to the depth of so many strong performing industry ETFs last week. Unfortunately, too many individual stocks look as if they could be on the verge of profit taking.
Walgreens Boots Alliance, Inc. (WBA) is one that we liked. The Pharmaceutical/Convenience Store’s stock just experienced the golden crossover, when the 50-day moves from below to above the 200-day mark broke a downtrend. We also like that our downside target isn’t too far from WBA’s current price of $36.53. If the stock closed below $34.30, we’d cut losses and move along. To the upside, WBA could revisit resistance between $40 and $42.
Remember, short-term trading is only for the most aggressive investors who can afford to lose money.